By Jon Young | | 7 mins
Understanding How Bookmakers Create Sports Odds
How are odds calculated? How do bookies make money? If you’re curious about how the sportsbooks always maintain their edge over the gambler, check out our guide.
With sports betting now legal in more and more US states, it’s important a bettor chooses the right sportsbooks and understands where the betting site makes its margins. Then he or she can register at multiple online sportsbooks and make the odds work in their favor.
How Odds Making Started
Sports betting in the US was once dominated by Las Vegas sportsbooks and backroom bookmakers. Bets were placed over the phone and odds changed as the weight of money shifted between favorite and underdog.
The bookmaker would try to “make the book” by laying bets on every outcome that gamblers would bet on. This way, they would balance out all the bets that could cost them money and come out with a profit. Indeed, bets were always recorded in a physical “book” that was kept on the premises before the game.
To form their book, the bookmaker would assign a probability to every result. The probability would add up to 100%. To make a profit, bookies would then introduce a 5-10% “vig,” or “juice” on every price. As long as the bookmaker balanced its bets, it meant a guaranteed profit for them.
Large betting companies were already using odds compilers by the 1940s and 1950s. Some markets followed the weight of money. And because chalkboards were used in the betting office, the bookmaker could simply change a price with a swipe of their board rubber.
Before long, “power ratings” were established that helped bookies compare the strength of sports teams and players to one another. This made it much easier to set prices, and it also helped gamblers find value in the markets.
How Bookmakers Calculate Sports Odds in the Modern Era
Over time, technology improved and bookmakers began to employ odds compilers and analysts to help them formulate their markets.
These days, betting odds compiling is about number crunching and using databases of information to set the market. Traders will analyze dozens of sports to correctly assess the probability of every outcome. The vig is then applied to the price, which helps set the bookmaker’s price.
For instance, it might be as simple as analyzing the home team’s previous results compared to the away team’s form. By running the numbers through mathematical models, odds compilers can quickly set odds in real time.
This is particularly useful in the age of in-play betting. In-play wagers are legal at all regulated US sports betting sites. You can bet in-running on the night’s football or basketball game and place bets as the odds change depending on events in the game.
In 2020, most odds compiling is outsourced. Specialist companies compile odds for in-play or pregame markets. That means that some sportsbooks may have near-identical odds to rival betting sites. As a gambler, you need to do your homework and find value.
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What Causes Odds to Change Before Events?
When asking the question: How do bookies make money, you need to look at how the odds change in real time.
At online sports betting sites, betting odds are changing all the time to reflect the weight of money moving around. If a rank underdog is suddenly attracting a lot of money, the betting site can move quickly to reduce the odds and protect their margin.
Conversely, if the favorite is attracting a lot more of the money, the odds on the underdog will likely increase.
But smart bookies will also employ analysts to look into every market to help them set their odds. Information can include things like key injuries to players or unusual team selections.
In addition, smart gamblers will use in-play markets to get an edge over the sportsbook. They try to place a wager before the bookmaker has had a chance to adjust the odds.
Let’s say a soccer player is +200 to score the next goal but has had five shots on goal in the last 10 minutes. A savvy gambler can get some quick value before the bookie has had a chance to reduce the odds.
Breaking Down How Bookmakers Make Their Money
The aim of the bookmaker is to make a profit. And the better they are at calculating odds the more profit they can make long-term.
The bookie will always try to price up a game or match to ensure an built-in advantage over the bettor. This is known as the vigorish or vig. It’s the way bookies try to balance all wagers so that they make a profit, whatever the end result.
There are actually two numbers you need to understand when looking at how bookies make money: the vig and the overround. The vig is the profit the bookmaker will make, as a percentage of all bets. The overround is the total “book” over 100% that they have covered.
An NFL betting example: The Los Angeles Rams are playing the Miami Dolphins. The bookmaker will try to assess the “implied probability” of each outcome, based on factors like form and home advantage:
Rams win: 65%
(Total implied probability = 100%)
However, the Rams are on a five-game unbeaten run and the bookmaker predicts a lot of money will go on the favorite. They adjust the moneyline odds to reflect that fact:
Rams to win at odds of -333 (Implied probability of 76.92%)
Miami Dolphins to win at odds of +190 (Implied probability of 34.48%)
(Total implied probability = 111.4%)
As you can see, the implied probability has increased by 11.4%. This is known as the overround. By adjusting the margin, the bookie is guaranteeing that they will ensure a long-term profit from the gamblers.
Most sportsbooks offer parlay betting too. These are combination bets that contain more than one outcome. Each leg of the parlay must come in for you to win your bet.
Let’s say the overround is 110% on one leg of your parlay, and you have five legs in total. The total overround is therefore 150% because you must factor in 10% on each leg. That’s a huge advantage for the bookie.
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How Having Options Has Leveled the Playing Field
When asking how betting odds work and how they are calculated, you need to look at the number of betting companies operating. The field has been leveled somewhat and many sportsbooks simply follow the money. No sportsbook wants to expose itself too much, especially if it has a price at $10 when all other bookies have the same result at $5.
In regulated US states, gamblers have a choice of maybe half a dozen mobile and online sportsbooks. Regulated online sports betting has only been around for a year or two, and the number of operators is set to grow. Plus, more and more states are likely to legalized sports gambling in the next 5-10 years.
That means a lot more betting opportunities but also more standardized odds across the market. It’s important that you do your own research and find good value, shopping around for the most favorable point spread or moneyline odds. Do you own research too: Study form and check the sports news sites or Twitter feeds for the latest injury or draft reports.
The Future of Odds-Making
With so many online sportsbooks in the US market, and more to come, expect bookmakers’ odds to become even more standardized.
More and more prices will be similar across multiple sportsbooks, and in some cases just copied. Bookmakers will generally follow the market when calculating odds.
As a gambler, how can you take advantage and maximize your payout? Sign up to multiple bookmakers and find value in one or two of your favorite markets. You should also look for special offers like enhanced odds and free bets that give the player a slight advantage – if they know what to look for.